China Screams 'Fake News'

GASP!  Did the mkt actually slip yesterday?  Say it ain’t so!!

Mkts got off to a bit of a rough start yesterday morning as investors weighed in on news that the Chinese were considering slowing or stopping purchases of US treasuries or worse yet - even thinking of selling some of their US treasury the wee hours of the morning as the sun was making its way across ‘the pond’ (otherwise known as the Atlantic Ocean) S&P futures signaled concern, weakness and angst.....Asian mkts had closed slightly lower and European mkts were also under a bit of pressure as investors there decided to take some profits in names that have done well in recent weeks, ahead of the start of earnings season and in response to the China story.

As the clocked ticked ever closer to 9:30 – Canada suggested that the US was about to pull out of NAFTA (North American Free Trade Agreement) and the pressure built……all indications were for a weaker session on the street - with some calling for a bit of a smackdown while others suggested that the story was a bit overdone and any weakness would be an opportunity.    As the morning got started - the Dow, S&P, Russell and Nasdaq fell quickly and by 9:53 am - were at the lows of the day.  Would these lows hold or was there more to come? 

The tone was decidedly uncomfortable as large investors and traders played this game of ‘Liar’s Poker*’.  Was this the beginning of a larger pullback?  Was the anxiety created by the China headline and the NAFTA headline enough to derail the bullishness and momentum of the past 3 months?  Who was gonna choke and fall victim to the others in ‘the game’?

*Liar’s Poker is a game that is played using the serial numbers on a dollar bill that involves statistical reasoning along with a good ability to bluff the others in the game. It was a very popular game in the ‘80’s (and ‘90’s).    It is also the name of a Michael Lewis book that portrays the antics that used to take place on the bond trading floor of the iconic investment bank - Salomon Brothers - It was a different time and place in history - and for those of us who experienced and remember it - It was an incredible time to be alive.

Ronald Reagan was President, Paul Volker was FED chair, European countries had their own currencies, The European Union (EU) wasn’t born yet – that was 1992 after the signing of the Maastricht Treaty – and the Euro was just an idea…..Deng Xiaoping was China’s leader,  The Iranian Hostage Crisis had just ended after 444 days (November 4, 1979 – January 20, 1981) – on the inauguration of Ronald Reagan,  interest rates were 21%, unemployment was 13% and inflation was running at 10%  The Dow was trading at 792, CD’s (certificates of deposit) were all the rage  and the birth of the greatest bull market the world has known was born on Tuesday -August 17th, 1982 – The Dow soared by 4.5% or 35 pts and the volume on the NYSE trading floor that day exploded to 138 mil shares (4 X the daily volume) – all by hand!  The internet did not exist, cells phones were for the rich and famous, and people actually spoke to each other.  It was an incredible time……. 

So, what happened?  Oh boy…do we really want to go there?? 

NO – I mean yesterday – What happened?   The bottom did not fall out......the selling subsided as the strategists/analysts all took to the airwaves spewing their analysis- Reuters claims that eh China story was ‘inaccurate’ – China claims it was FAKE NEWS and that China was not the big bad boogey man that the headlines suggested and an analysis of NAFTA suggested that it was more of a bargaining tactic than a real headline issue…..…it’s all about positioning….and so the mkts stabilized…sellers backed off a bit and buyers treaded ever so gently back into the game.  At this point- all the indices found support and over the balance of the day – traded a bit higher – still ending the day in negative territory but well off the lows. 

Bonds got slammed sending yields higher – giving the bank stocks another boost while punishing utilities and REITS yet again.   Remember – these two sectors have been under the gun for weeks now…the XLU (Util ETF) is down 11% since the November highs as investors considered what rising rates means for this group and REITS?  Well the VNQ (Vanguard REIT ETF) is down 8% in 3 weeks, REET (the iShares REIT ETF) is down 5% in that same time frame as money moves out of these ‘bond like’ investments and into the mkt….so think financials, XLF, industrials, XLI, energy, XLE, consumer discretionary, XLY, healthcare, XLV as we move into 2018. 

Overnight Asian mkts came under a bit of pressure – both rising sense of US Protectionist policies along with earnings season kick off…. sellers presented themselves in auto’s, steelmakers, manufacturers and tech as traders took profits. Japan – 0.33%, Hong Kong + 0.15%, China – 0.05% and ASX – 0.48%.

In Europe – mkts are mixed…as there is no common theme today.  EU Ind Production jumped by 1% - suggesting continued strength in the recovery.  Germany expected to grow by 2.25% in 2018 and is not at risk of overheating.   Telecoms, tech and retail all under pressure.  FTSE +.11%, CAC 40 -0.02%, DAX -0.18%, EUROSTOXX -0.08%, SPAIN -0.06% and the Italians are bucking the trend now…. currently +0.42%.

Oil (WTI – West Texas Intermediate) – continues to trade higher - up again by 0.37 cts/barrel at $63.95. North Sea Brent Crude continues to snuggle up against $70/barrel – but the mkt does feel a bit extended….in the 1st Qtr – the risk is now to the downside after the explosive  14% rally in a month.  And while we know that OPEC continues to cut and small declines in US rig counts are helping to support this move…we are moving into a seasonally weaker time frame and both Iran and Iraq cut supply prices to remain competitive…so $64 ish feels a bit expensive…. as the mkt are now feeling a bit fatigued. 

Gold – is flat at $1,319/oz  

US futures are up 4 pts in early trade   Eco data today includes PPI of +0.2%, ex food and energy of +0.2%, Init jobless claims of 245k, Cont Claims of 1.9 mil.  The S&P appears to be in the 2635/2660 trading range.  The mkt will continue to focus on both tech and banks….and follow suit…Watch for action in JPM, WFC and BLK today (along with the other banks) as earnings announcements are less than 24 hrs away.

DAL crushed their number this morning reporting 0.96/cts vs expected 0.84 cts.  Stock is up $2 in pre-mkt trading….


Lemon Roasted Feta Chicken 

Start with thighs and legs - I make some skinless and leave the skin on others so that I get some of the juice from the skin.... but either way is fine...whatever you prefer.........
Start with 6 pieces of chicken, 2 cloves crushed garlic, 1 lg sliced onion and 3 potatoes that you have either cubed, or quartered or sliced...whichever way you prefer works just fine....
Place chicken, garlic, onion and potatoes in a glass baking dish.... season with S&P.
Preheat oven to 400 degrees.
Next whisk together:  1 cup of chicken broth, 1/8 cup of olive oil, about 1/4 cup fresh lemon juice and some dried oregano.  Pour over the chicken, cover tightly and let marinate for 20 mins.
Place in oven and roast for about 30mins - then remove cover and roast for 20 more mins .... basting occasionally with the pan juices.  Now turn on broiler and ...Broil the chicken on each side until nice and golden brown.  Careful not to burn the potatoes.
After broiling - add crumbled feta cheese over the chicken and potatoes and return to the broiler for a couple of mins- just so the cheese softens really.    Once completed serve on a warmed platter with Chicken in the center surrounded by the potatoes - serve juice on side.  Enjoy this dish with a steamed green vegetable- like asparagus, or broccoli.  Season with S&P and a dab of butter.

Buon Appetito.

The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.